The private bank believes fears of a new downturn in Europe are inconsistent with growing optimism about the outlook for the US economy, and remains Overweight in European equities as well as in Emerging Market stocks. However, US equities are kept Underweight on valuation grounds and with the prospect of interest rate increases and the prospect of a strong USD.
Investment in selected global industries is seen as a means to bridge divergent medium term GDP growth expectations between regional economic blocks. The IT, Healthcare and Materials sectors remain favoured sectors and with Overweight ratings.
Asset allocations in the private bank’s balanced model portfolio remain unchanged from the previous quarter, with equities comprising 43%, bonds 37%, property 8%, cash 5%, hedge funds 5% and commodities 2%.
Didier Duret, Chief Investment Officer of ABN AMRO Private Banking, commented: "We are keeping our sails out and remain ‘risk-on’ in our approach, as stock market fundamentals continue to counterbalance perceived macro risks. Our investment philosophy is also driven by a view that global industries matter more than geography – there is often a disconnect between the macro picture and strong micro stories of individual companies operating in multiple regions."
The equity theme of the quarter is companies likely to benefit from the increased availability of oil from new sources such as US shale. This includes independent oil producers with export opportunities (Devon Energy and Occidental Petroleum), oil services companies (Halliburton and Schlumberger) and infrastructure firms (Kinder Morgan and Fluor).
Fixed income remains Underweight, although high yield, European periphery and Asia corporate bonds are still recommended. The US Dollar is favoured among currencies, with EUR/USD rate expected to break through 1.28. Long/ short equity and event driven hedge funds are recommended for diversification alongside US commercial property. Commodities remain Neutral.
ABN AMRO Private Banking was last week rated as having the best wealth management website for the third year running, in a survey of 40 leading wealth managers and private banks conducted by Swiss research company MyPrivateBanking Research.